CASE STUDY $2$: Project Selection at Nova Western, Inc.

Phyllis Henry, vice president of new product development, sat at her desk, trying to make sense of the latest new project proposals she had just received from her staff. Nova Western, Inc., a large developer of business software and application programs, had been experiencing a downturn in operating revenues over the past three quarters. Their consensus opinion was that Nova Western needed some new product ideas, and fast.

The report Phyllis was reading contained project screenings conducted by two independent groups within the new product development department. One project, code$-$named Janus, was championed by the head of software development. The other project idea, Gemini, had the support of the business applications organization. Phyllis's original charge to her staff was to prepare an evaluation of both projects in order to decide which one Nova Western should support. Because of budget restrictions, there was no way that both projects could be funded.

The first evaluation team used a weighted scoring model, based on the key strategic categories at Nova Western, to evaluate the two projects. However, Phyllis was also presented with financial analyses of the two projects by her second team of evaluators. Their evaluation assumed a required rate of return of $18\%$ including anticipated inflation, over the lives of the two projects.

Nova Western's client is very concerned about being first to market after the successful completion of this new project. They are very concerned about the project scope and deliverables and are not interested in any changes. Budget is always a concern but there are budget and management reserve funds available just in case additional resources are needed.

The data the project selection teams collected are shown on the next page:

Complete the tables on the next page. Use the weighted scoring model to score each project. Use the financial selection models to calculate the net present value and the simple payback for each project. Place these values in the tables on the next page in spaces indicated.

Using only the financial criteria for project selection, which project should Nova Western select?

Using only the weighted scoring model for project selection, which project should Nova Western select?